The Occupy protest at St Paul's has entered its 14th day, with its organisers saying they have no intention of leaving following the resignation of the cathedral's canon chancellor.

Giles Fraser quit his post at the cathedral on Thursday because, he said, he could not face the prospect of "Dale Farm on the steps of St Paul's", as police prepared to take action against the anti-capitalist protesters within days.

Fraser, who announced his decision on Twitter, said he could not sanction the use of violence to rid the cathedral grounds of campaigners.

The Occupy the London Stock Exchange protest, comprising around 200 tents, continued on Friday morning, despite repeated requests from the cathedral, the City of London Corporation, the bishop of London, the mayor of London and the lord mayor of London.

The cathedral closed its doors a week ago, citing health and safety reasons, but is expected to reopen on Friday with a special service after an amicable reshuffle of tents.

"St Paul was a tentmaker. If you looked around and you tried to recreate where Jesus would be born – for me, I could imagine Jesus being born in the camp," Fraser said in an exclusive interview with the Guardian.

"It is not about my sympathies or what I believe about the camp. I support the right to protest and in a perfect world we could have negotiated. But our legal advice was that this would have implied consent. The church cannot answer peaceful protest with violence."

It was apparent that the corporation was clearer than the cathedral about its desire to see the protesters moved on, Fraser said.

"I cannot countenance the idea that this would be about Dale Farm on the steps of St Paul's. I would want to have negotiated down the size of the camp and appeal to those there to help us keep the cathedral going, and if that meant that I was thereby granting them some legal right to stay then that is the position I would have had to wear … I believe that we embarked upon a course of action that would lead to a place where I didn't want to go."

Lord Carey, the former archbishop of Canterbury, said the episode had been mismanaged by the church and was damaging the reputation of Christianity. Writing in the Telegraph, Carey said it was a "debacle that should prompt urgent public debate both within the Church of England, and throughout society at large".

"After their initial welcome to Occupy, the cathedral authorities seemed to lose their nerve," he wrote.

"One moment the church was reclaiming a valuable role in hosting public protest and scrutiny, the next it was looking in turns like the temple which Jesus cleansed, or the officious risk-averse 'elf 'n' safety bureaucracy of urban legend. How could the dean and chapter at St Paul's have let themselves get into such a position?

"We are all protesters, even if we don't take to the streets. We all have an inchoate sense that something is wrong and we have any number of culprits to blame – from Europe, to immigrants, to the banks, to politicians and media barons."

The spectre of a forcible eviction appears ever more likely, with the Metropolitan police taking a keen interest in the escalating crisis.

The land around the cathedral is within the City of London police area but the force is working with the Met to decide how to deal with the encampment.

Amid growing tensions, protesters using Twitter said armed police had entered the camp as a tent belonging to Kurdish activists was searched. The City of London police said its officers had gone to the camp in response to reports of a firearm.

Bernard Hogan-Howe, the commissioner of the Met, said police were in the last stages of assessing whether to clear the demonstrators under section 14 of the Public Order Act. Under section 14 police can forcibly remove the protesters outside St Paul's and those gathered in Finsbury Square if they believe the disruption to the public and the people working in the area is "serious".

The commissioner indicated a judgment on that would come within 48 hours. "Deciding what is serious is what we are in the process of doing," he told the Metropolitan Police Authority (MPA). "We need to have some kind of consensus so we are in the process of asking that question."

He said discussions were continuing and information was being gathered from shopkeepers, the landowners and other members of the public to assess the level of disruption. Once this work had been done a decision on taking clearance action would be made. The MPA had been told that shopkeepers in the area had seen their takings down by 80% since the encampment began.

Hogan-Howe said the situation facing the police was complex. "If there is criminality being committed we need to do something about it. And there is some evidence that some of the protesters are leaving at night and coming back during the day. Taken together they have got a legitimate right to protest; they have no legitimate right to commit crimes. That is the complexity of what we are trying to deal with."

The land was owned by different people, which compounded the issue, Hogan-Howe said. "Either we ignore it and the property owners take some kind of injunctions out, or we use the criminal law, or we use injunctions and the criminal law … that will require careful judgments over the coming days."

The Home Office refused to say whether the home secretary, Theresa May, or Home Office representatives had been in direct contact with church authorities after suggestions that the government department had put pressure on the church to get protesters evicted.

The dean of St Paul's, the Right Rev Graeme Knowles, said he was "very sorry" to see Fraser go. Occupy London praised him for being a man of "great personal integrity".

Knowles and the bishop of London, the Right Rev Richard Chartres, will meet members of the Occupy movement on the steps of St Paul's on Sunday. They have offered to arrange a debate between protesters and business leaders but only if the camp moves on "peacefully".

Chartres, who lives across the road from the cathedral, said the time had come "to change the setting".

The current archbishop of Canterbury, Rowan Williams, who is currently in Italy meeting with the pope, is yet to comment on events.